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How social communications affect product line design in the platform economy

Author

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  • Xiang Ji
  • Guo Li
  • Suresh P. Sethi

Abstract

The booming platform economy has made it very convenient for consumers to communicate with each other through social media whenever and wherever they want. As industry and academia have repeatedly confirmed, such social communications are now significantly changing firms' business and management practices. This paper studies how social communications affect an upstream firm's product line design in the platform economy when an online platform makes strategic contract choices. We show that for both wholesale and agency contracts, social communications increase the product line length while decreasing the product price and quality. We also identify the conditions under which social communications provide a firm with fewer incentives for product line extension under a wholesale contract than under an agency contract. On the platform side, we show that an agency contract can be preferred in the presence of social communications over a wholesale contract if and only if the commission rate is sufficiently high or both the commission rate and the product line extension fee are moderate.

Suggested Citation

  • Xiang Ji & Guo Li & Suresh P. Sethi, 2022. "How social communications affect product line design in the platform economy," International Journal of Production Research, Taylor & Francis Journals, vol. 60(2), pages 686-703, January.
    • Handle: RePEc:taf:tprsxx:v:60:y:2022:i:2:p:686-703
    DOI: 10.1080/00207543.2021.2013562
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    Cited by:

    1. Cao, Hanrui & Chen, Zhixin & Zhou, Zhixiang & Wu, Jie, 2023. "Agency or wholesale? Strategic analysis of the influence of distribution strategy on product line design with endogenous quality," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 687-701.
    2. Wu, Jie & Lu, Wei & Ji, Xiang, 2023. "The interactions between upstream quality disclosure and downstream entry," European Journal of Operational Research, Elsevier, vol. 309(2), pages 545-559.

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